How Credit Card Interest Works in Canada 2025
A complete guide to understanding credit card interest calculations, minimum payments, and debt payoff strategies.
Credit card interest is one of the most expensive forms of debt in Canada. Understanding how it works can save you thousands in unnecessary charges.
How Interest Is Calculated
Canadian credit cards use daily compounding interest. The formula is:
Daily interest rate = Annual Percentage Rate (APR) / 365
Daily interest charge = Balance × Daily rate
Example: $5,000 balance at 19.99% APR
- Daily rate = 19.99% / 365 = 0.0548%
- Daily interest = $5,000 × 0.000548 = $2.74
- Monthly interest ≈ $82
The Minimum Payment Trap
Most cards require minimum payments of 2–3% of balance or $10 (whichever is higher). This keeps you in debt longer.
Example: $5,000 balance at 19.99% with $100 minimum payments would take over 30 years to pay off, costing more than $15,000 in interest.
Grace Period Explained
You have 21 days interest-free on new purchases if you pay the full statement balance by the due date.
Strategies to Avoid Interest
- Pay balance in full every month
- Use 0% balance transfer offers
- Choose low-interest cards for carrying balances
- Set up automatic payments
Debt Payoff Methods
Avalanche method: Pay highest interest first.
Snowball method: Pay smallest balance first for psychological wins.
Understanding interest calculation empowers you to make smarter financial decisions.
